The Presidency: Interrogation of 2008/09 Annual Report and Financial Statements

Meeting report

Office of the Presidency: Interrogation of 2008/09 Annual Report and Financial Statements
Mr M Steele (DA) referred to Pages 121, 157 and 158 of Annual Report. There was an amount spent on furniture and office equipment, for which documents could not be provided at the audit. Furthermore the asset register was not complete, as documents were not properly kept, and there was no proof of disposal of these assets. He asked for an explanation as to the failure to provide appropriate audit evidence.

Ms Jessie Yasmin Duarte, Chief Operations Officer, The Presidency, replied that the assessment of the Auditor-General (AG) was correct, as certain principles of accounts were not followed. Minor and major assets were recorded in the Asset Register, and consumables were also erroneously recorded. The fundamental problem was that assets were not recorded upon receipt, and the time lapse between receiving and recording created a lot of problems.

Ms Bahumi Matebisi, Chief Financial Officer, The Presidency, gave an explanation on the amount of R9 463 000. The closing balance of 2007/08 was suspect, according to the AG, so the Presidency had to restate the opening balance in 2008/09 in order to have a proper figure. The Presidency went through a process of verification of its entire assets. An adjustment of R9 463 000 was necessary, being the difference between the 2007/08 closing balance and the 2008/09 opening balance. Unfortunately there was no documentation to support the adjustment of that amount, which was a result of inadequate document management within the Presidency.

The Chairperson asked who was supposed to make sure that the assets were recorded.

Ms Duarte replied that that was the job of the Chief Financial Officer and the supply chain management at director level.

The Chairperson asked what action had been taken against these officials who had caused the Presidency to have an audit qualification, through not doing their jobs properly.

Ms Duarte explained that this had transpired happened before the current team of officials took over.

The Chairperson then concluded that nothing had happened to the erring officials. He reminded the Presidency that accountability was not personal but institutional.

Ms M Mangena (ANC) understood that there was a new team in place but said that it was important that the matters be rectified.

Mr M Mbili (ANC) said that the argument that a new team was in place did not hold water. He demanded to know, from an institutional point of view, what had happened to the people implicated.

Mr N Singh (IFP) said the Committee had noticed often, during interrogations of departments, that those responsible for errors might have moved on, or even been promoted. The Committee did not want similar mistakes to recur, which was the reason for the Committee’s enquiry into the identity of those responsible.

Mr P Pretorius (DA) asked if there was a problem of inefficiency due to lack of knowledge of the people appointed within the Presidency, or what the reason was that people seemed unable to do the job.

Ms Duarte replied that the people employed were qualified.

Mr Steele expressed concern over the use of the term ‘time lapse between receiving and recording’ as applied by the Chief Operations Officer. The items in question were computers, furniture and other machinery, which were highly portable objects. He noted that when there was a “time lapse” before recording the items on to an asset register, there was a high risk that the items would simply disappear. He asked if there had been any investigation into the potential loss of items as a result of the time lapse, and what measures the Presidency had put in place to ensure that the audit qualification would not appear in future.

Ms Duarte replied that the Chief Financial Officer (CFO) had asked for a complete stocktake of all assets and had bar coded every single piece of equipment belonging to the Presidency. Equipment belonging to the Department of Public Works (DPW) was also bar coded with its own bar code and system. Whatever was on the assets register currently had been bar coded. It was mainly IT equipment. This asset register had been entered on to the computer system, and was correct. The Presidency appointed a company to do a clean and pristine asset register. There was now a monthly report from the CFO indicating which assets had come in and where they were located. The Presidency had also instituted recording of assets behind every door and room. Staff were not allowed to move any assets without prior written notification as to where the asset was being moving. Any asset moved would furthermore be logged into a new location. The Presidency regarded the matter seriously and did not want to appear before the Committee on a similar matter. Some of the staff had been trained by the company that came in to prepare the asset register.

Mr S Thobejane (ANC) said that the fact that current officials were admitting that there was dereliction of responsibility by the former officials did not exonerate them. He referred to Section 38 of the Public Finance Management Act (PFMA), which called upon the accounting offer to deal with those who failed to do the work they were supposed to do. Since the Presidency was admitting that some people did not do the job, he wanted to know what disciplinary measures had been taken.

Ms Duarte replied that no action was taken against any of the officials who were, at the time, responsible for the asset register. Some of them had acknowledged the errors with recording in the asset register, and were still with the Department at a junior level.

Mr Pretorius asked for confirmation that the company that was brought in to work on the asset register was brought in for one financial year, and that the asset register thereafter would be managed by permanent staff.

Ms Duarte replied that the company would only train the staff, and they would manage the asset register onwards.

Mr Steele referred to pages 120 and 124 of the Annual Report. The system of internal control was not entirely effective. There were deficiencies and deviations in the system of internal control as reported by the internal auditors and the AG. Matters reported upon in previous years had not been addressed. He wanted assurance that matters being raised were being addressed and that internal controls would function effectively.

Mr Ken Terry, Deputy Director General: Strategy and Operations, The Presidency, replied that systems had been put in place to ensure that issues of internal control were dealt with appropriately. The issues that were raised by internal audit and the AG were put on a matrix and follow ups were made on a monthly basis, to check which issues had been corrected. An internal control unit had been created under the Chief Financial Officer and there were efforts to create and fund positions.

Mr Steele asked if there was capacity within the Presidency to run the internal control unit, as it appeared that some positions were vacant.

Ms Matebisi replied that the Presidency would use internal staff. The Head, at Deputy Director level, had been appointed. The positions of the assistant director and practitioner would be filled soon.

Mr R Ainslie (ANC) referred to page 120 of the Annual Report. The Audit Committee was satisfied with the content and quality of monthly and quarterly reports. This was a contradiction, given that the AG had reported that matters raised previously had not been addressed.

Mr George Negota, Chairperson of the Audit Committee, the Presidency, replied that there was no contradiction, as the AG’s report was a summation of all the activities. Issues that the might not have been picked up internally were sometimes picked up by the Auditor General.

Mr Singh asked if the systems put in place with internal control were functioning well in the current financial year.

Mr Negota replied that there had been a lot of improvement within the system of internal control.

Mr Steele referred to pages 146, 147 and 150 of the Annual Report. There were ‘red flags’ raised around risk management that needed to be noted and commented upon. Firstly there was an increase in staff debt from R 2.4 million to R3 million. Secondly, other debtors and thefts and losses had increased from R 5.2 million to R 5.4 million. Thirdly, legal costs had risen from R 445 000 to R 10.1 million, and travel and subsistence had also risen from R 40 million to R52.5 million. These were not items of irregular expenditure, but they were nonetheless worrying increases, and illustrated that there was a need for improved financial management to resolve the situation.

Ms Matebisi replied that the Presidency was in control. The reported increase in staff debt was how going down.

Mr Alan Hirsh, Deputy Director General, the Presidency, replied on the issue of debtors. The debt was a transfer from the Office on the Status of Disabled Persons (OSDP) to the Federal Council of Disability of South Africa, in 2003/04.The latter entity had disintegrated and one of the payments was not accounted for as the organisation was no more. The Presidency was unsuccessful in obtaining accounts for the expenditure of funds.

Ms Matebisi replied that the R10 million was for the President’s legal costs. On the issue of theft of funds, there were legal proceedings that had been instituted against those responsible, and they were subsequently dismissed.

Ms Duarte added to the explanation on legal costs of R10 million. There was a trend where the President was the first respondent in a number of matters. R5 million was used to settle these matters and the other R5 million was used for the President’s legal fees.

Mr Mbili referred to page 122 of the Annual Report. The Auditor General pointed out that the Presidency contravened Section 38(1)(a)(i) of the PFMA in relation to an amount of R24 million. He asked what had actually transpired. 

Ms Duarte replied that the amount was transferred to the National Youth Commission (NYC) whose accounting fell under the Presidency. The NYC had made a request to have their funds transferred to that organisation, prior to providing a compliance certificate and accounting. The decision was made to transfer the money because the Commission would not otherwise have functioned.

Mr Mbili asked why all the money was given to the NYC. It could have been funded with just enough to allow it to function while awaiting the compliance certificate.

Mr Terry replied that only the salaries were transferred. The money was transferred in tranches. By the end of the year, all the information had been provided and the Presidency was able to do the final transfer.

Ms L Mashiane (COPE) said that she did not buy into the explanation, because the annual funding for the NYC was R24 million, and the same amount was transferred.

Mr Terry replied that the full amount was disbursed at the end of the final year. The Presidency could not allow the NYC to go into an overdraft situation, as that was contrary to the legislation. Some of the payments in tranches were made without certification, which was the problem.

Mr Mbili asked if the National Youth Commission had submitted its annual report.

Ms Duarte replied that the NYC had not yet submitted its report.

Mr Thobejane referred to page 155 of the Annual Report. There was an amount of R2.6 million indicated, as the opening balance arising from the previous year awaiting condonation. He asked what the situation was in regard to this amount.

The Chief Financial Officer replied that the matter would be addressed.

Mr Singh referred to page 157 of the Annual Report.  The Presidency paid R3 million and R 1 million to the Isigodlo Trust and the South African Chapter on the African Renaissance respectively. He asked if the Presidency was satisfied that the money was used for what the Memoranda of Understanding had specified. He asked if the amounts were still being paid over.

Ms Matebisi replied that the transfers were completed last year, and the Presidency was satisfied that the money was used for the intended purpose. There had been a qualification in relation to the South African Chapter and a follow up was made. There had been assurances that a recovery of the amounts that had been overpaid would be done.

Ms T Chiloane (ANC) refereed to the unauthorised expenditure mentioned on page 122 of the Annual Report, in the amount of R14.5 million, due to overspending. She asked for an explanation on the overspending.

Ms Duarte replied that the national awards ceremony in the financial year ending 2009 was shifted from May 2009 to March 2010. Therefore, expenditure was incurred in a financial year although it was not intended for that year. The amount was R3.76 million. There were also costs relating to the mediation in Zimbabwe by former President Mbeki, amounting to R5.27 million, which had not been adequately budgeted for. These related to his appointment as a facilitator. In addition, there were costs relating to the additional Minister in the Presidency and his support staff, and relating to the appointment of Minister Motlanthe. There were also costs relating to unavoidable legal fees of R5 million. There was also an unauthorised expenditure of R1.35 million relating to a delegation, including a large group from civil society, who had attended a United Nations convention on the rights of people with disabilities; although the United Nations was supposed to refund the money, no such refund had been made. These activities combined accounted for the R14.5 million classified as unauthorised expenditure.

Mr Steele asked for a breakdown of legal fees.

The Chairperson ruled that this information should be provided within a week.

Mr Pretorius said that the information concerning the unauthorised expenditure provided by Ms Duarte was contained on page 131 of the Annual Report. She had left out information regarding the unforeseen and unavoidable leave gratuity payments incurred due to the change of political principals in September 2008. He asked under what circumstances a Minister was entitled to such payments.

Ms Matebisi replied that the gratuity was in line with a Government Gazette 31597 of 12 November 2008. The gazette provides that a special one-off gratuity be paid to a member of executive council or member of provincial legislature who had served a period of five years or less. This culminated in a one off payment equal to four months pensionable salary for every five years or a pro-rata part of the five years.

Ms Chiloane asked how the shifting of the national awards ceremony from May 2009 to March affected over-spending, when the activity was not budgeted for.

Ms Duarte responded that it was not in that particular financial year.

Ms Chiloane referred to page 148 of the Annual Report, referring to motivation submitted and a review pending. She asked for detail, and the status of the motivation.

Ms Matebisi replied that this referred to the motivation supplied to the National Treasury with regard to overspending of R14.5 million.
 
The Chairperson asked what the progress was on the issue as the motivation was made in September 2009.

Ms Matebisi replied that she did not know the process very well, but could say that once National Treasury had been notified, after a SCOPA hearing, Parliament could condone the matter and there would be a process to rectify it.

The Chairperson advised the Presidency to follow the issue up with National Treasury.

Mr Pretorius asked who had received the gratuity payment and what was the amount received. He asked if this proclamation would apply in future.

Ms Matebisi replied that the previous Deputy President and the previous Minister in the Presidency had received payments.

Ms Duarte replied that the proclamation was in terms of Section 6.1 of the Remuneration of Public Office Bearers Act. The Act determined the total remuneration of public office bearers with effect from 1 April 2008.The gratuity would therefore be continuous.

Mr Terry said that it should be noted that all the unauthorised expenditure had taken place after the budget adjustment process. If the report had been released prior to the adjustment process, these amounts would not have been expressed as over-expenditure because the Presidency would have been able to get additional funds to cover them.

Mr Steele referred to page 151 of the Annual Report, relating to the bank overdraft of R43 million. He asked if this was being managed by the Presidency.

Ms Matebisi replied that for the current financial year the account was in the positive.

The Chairperson invited the Minister to comment on some of the matters raised. He said that the issue of continuity was a problem not only in the Presidency, but in most departments. Almost all the departments that had appeared before the Committee had officials in an acting capacity. The issue of the National Youth Commission and the Gender Commission also needed attention, as well as the non-punishing of transgressors. There was no Section 65 letter from the Minister’s office explaining why the National Youth Commission had not submitted its report.

Hon Collins Chabane, Minister in The Presidency, appreciated the manner in which the Committee had raised issues. The issue of the National Youth Commission would be followed up and a report would be furnished to the Committee. The Presidency was looking at reducing non-compliance matters to a zero level in the next financial year. The Presidency was appearing before SCOPA for the first time and hopefully for the last. The interventions made had been embraced positively and would help improve the system.

The meeting was adjourned.